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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from __________ to _____________
Commission File Number: 0-26086
YARDVILLE NATIONAL BANCORP
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2670267
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3111 Quakerbridge Road, Mercerville, New Jersey 08619
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(Address of principal executive offices) (Zip Code)
(609) 585-5100
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes(X) No( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 1, 1997
Common Stock, no par value 2,473,934
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Class Number of shares outstanding
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INDEX
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
PART I FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Consolidated Statements of Condition
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three months and six months ended
June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1997
and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-15
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
Item 10.1 1988 Stock Option Plan 19
Exhibit 27.1 Financial Data Schedule 27
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Yardville National Bancorp and Subsidiary
Consolidated Statements of Condition
(unaudited)
June 30, December 31,
(in thousands, except share data) 1997 1996
ASSETS:
Cash and due from banks $ 19,119 $ 13,110
Federal funds sold 1,250 4,040
Cash and Cash Equivalents 20,369 17,150
Interest bearing deposits 873 1,357
Securities available for sale 106,002 93,671
Investment securities (market value of $28,732 in 1997
and $30,878 in 1996) 29,105 31,296
Loans 352,941 331,237
Less: Allowance for loan losses (5,284) (4,957)
Loans, net 347,657 326,280
Bank premises and equipment, net 5,307 5,418
Other real estate 873 395
Other assets 15,534 14,978
Total Assets $525,720 $490,545
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits
Non-interest bearing $ 59,154 $ 55,519
Interest bearing 355,676 308,926
Total Deposits 414,830 364,445
Borrowed funds
Securities sold under agreements to repurchase 50,020 64,185
Other 18,119 22,154
Total Borrowed Funds 68,139 86,339
Other liabilities 5,122 4,531
Total Liabilities $488,091 $455,315
Stockholders' equity
Preferred stock: no par value
Authorized 1,000,000 shares, none issued
Common stock: no par value
Authorized 6,000,000 shares
Issued and outstanding 2,472,954 shares in 1997
and 2,430,414 shares in 1996 17,625 17,246
Surplus 2,205 2,205
Undivided Profits 17,818 15,940
Unrealized loss - securities available for sale (19) (161)
Total Stockholders' Equity 37,629 35,230
Total Liabilities and Stockholders' Equity $525,720 $490,545
See accompanying Notes to Unaudited Consolidated Financial Statements.
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Yardville National Bancorp and Subsidiary
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per share amounts) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 7,751 $ 6,191 $15,096 $12,078
Interest on deposits with banks 16 32 32 66
Interest on securities available for sale 1,760 1,608 3,329 3,011
Interest on investment securities:
Taxable 329 395 671 805
Exempt from Federal income tax 100 97 202 193
Interest on Federal funds sold 72 29 236 86
Total Interest Income 10,028 8,352 19,566 16,239
Interest Expense:
Interest on savings account deposits 1,288 990 2,518 1,962
Interest on certificates of deposit of $100,000 or more 339 190 644 393
Interest on other time deposits 2,414 1,631 4,642 3,248
Interest on borrowed funds 1,059 1,281 2,216 2,256
Total Interest Expense 5,100 4,092 10,020 7,859
Net Interest Income 4,928 4,260 9,546 8,380
Less provision for loan losses 300 450 575 715
Net Interest Income After Provision for Loan Losses 4,628 3,810 8,971 7,665
Non-Interest Income:
Service charges on deposit accounts 287 294 570 584
Gains on sales of mortgages, net 9 - 9 -
Security gains (losses), net 7 (25) 7 (46)
Other non-interest income 331 256 654 497
Total Non-Interest Income 634 525 1,240 1,035
Non-Interest Expense:
Salaries and employee benefits 1,852 1,619 3,669 3,200
Occupancy expense, net 241 225 475 445
Equipment 278 180 528 357
Other non-interest expense 959 773 1,737 1,613
Total Non-Interest Expense 3,330 2,797 6,409 5,615
Income before income tax expense 1,932 1,538 3,802 3,085
Income tax expense 677 547 1,335 1,102
Net Income $ 1,255 $ 991 $ 2,467 $ 1,983
Earnings Per Share:
Primary $ 0.50 $ 0.41 $ 0.99 $ 0.81
Fully diluted $ 0.50 $ 0.41 $ 0.99 $ 0.81
Weighted average shares outstanding 2,503 2,422 2,492 2,389
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
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Yardville National Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
(in thousands) 1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,467 $ 1,983
Adjustments:
Provision for Loan Losses 575 715
Depreciation 420 346
Amortization and accretion 216 309
(Gain) loss on sale of securities available for sale (7) 46
Writedown of other real estate 8 35
Increase in other assets (651) (4,268)
Increase in other liabilities 591 246
1,153 (2,571)
Net Cash Provided by Operating Activities 3,619 (588)
Cash Flows from Investing Activities:
Net (increase) decrease in interest bearing deposits 484 (2,324)
Proceeds from maturities and paydowns of
investment securities 2,113 2,004
Purchase of securities available for sale (25,970) (56,346)
Proceeds from sale of securities available for sale 2,011 28,181
Purchase of investment securities - (453)
Maturities, calls & paydowns of securities
available for sale 11,734 16,061
Net increase in loans (22,438) (41,121)
Expenditures for bank premises and equipment (309) (1,712)
Proceeds from sale of O.R.E - 141
Net Cash Used by Investing Activities (32,375) (55,569)
Cash Flows from Financing Activities:
Net increase in non-interest bearing
demand, money market, and saving deposits 28,755 9,893
Net increase in certificates of deposit 21,630 4,193
Net increase in borrowed funds (18,200) 40,356
Proceeds from issuance of common stock 379 821
Dividends paid (589) (525)
Net Cash Provided by Financing Activities 31,975 54,738
Net increase (decrease) in cash and cash equivalents 3,219 (1,419)
Cash and cash equivalents at beginning of period 17,150 12,835
Cash and Cash Equivalents at End of Period $ 20,369 $ 11,416
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest expense $ 9,131 $ 7,709
Income taxes 2,301 1,555
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
Supplemental Schedule of Non-cash Financing Activities:
During the six month period ended June 30, 1997 the Corporation transferred
$486,000, net of charge offs, from loans to other real estate.
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Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1997
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
The consolidated financial data as of and for the six months ended June 30,
1997 and 1996 includes, in the opinion of management, all adjustments,
consisting of only normal recurring accruals, necessary for a fair presentation
of such periods. The consolidated financial data for the interim periods
presented is not necessarily indicative of the results of operations that might
be expected for the entire year ending December 31, 1997.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowance for loan losses and the valuation of other real estate, management
obtains independent appraisals for significant properties.
Consolidation
The consolidated financial statements include the accounts of Yardville
National Bancorp (the "Corporation") and its sole subsidiary, the Yardville
National Bank (the "Bank") and Yardville's wholly owned subsidiaries, The
Yardville National Investment Corporation, Brenden, Inc., a subsidiary of the
Bank utilized for the control and disposal of other real estate properties and
the YNB Real Estate Holding Company, a subsidiary of the Bank utilized to hold
Bank branch properties. All significant intercompany accounts and transactions
have been eliminated.
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Allowance for Loan Losses
For financial reporting purposes, the provision for loan losses charged to
operating expense is determined by management and is based upon a periodic
review of the loan portfolio, past experience, the economy, and other factors
that may affect the borrower's ability to repay the loan. This provision is
based on management's estimates, and actual losses may vary from these
estimates. These estimates are reviewed and, as adjustments become necessary,
they are reported in the periods in which they become known. Management believes
that the allowance for losses on loans is adequate. While management uses
available information to recognize losses on loans and other real estate, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in New Jersey. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for losses on loans and the valuation of other real estate.
Such agencies may require the Bank to recognize additions to the allowance or
adjustments to the carrying value of other real estate based on their judgments
about information available to them at the time of their examination.
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YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This financial review presents Management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
consolidated financial statements and the accompanying notes. The term
"Yardville" as used herein refers to the Company together with its sole
subsidiary, the Bank.
FINANCIAL CONDITION
Assets
Total consolidated assets at June 30, 1997 totaled $525,720,000 an increase of
$35,175,000 or 7.2%, compared to $490,545,000 at December 31, 1996. The growth
in Yardville's asset base during the first six months of 1997 was primarily due
to an increase in loans and securities. The increase in loans was the product of
a strategy to improve profitability of the organization through relationship
banking and the continued consolidation in Yardville's marketplace, which has
solidified Yardville's competitive position in the small and middle markets.
Yardville's asset base includes investments of approximately $57,100,000
purchased utilizing repurchase agreements and time deposits (Investment Growth
Strategy) at June 30, 1997, an increase of $6,000,000 compared to approximately
$51,000,000 at December 31, 1996. The primary goals of the growth strategy are
to improve return on equity and earnings per share.
Securities
Total securities increased by $10,140,000 or 8.1% to $135,107,000 as of June 30,
1997 compared to year end 1996. The growth in the securities portfolio in the
first half of 1997 was due to the purchase of short term treasuries and
government agency bonds to enhance short-term liquidity and the increase in the
investment growth strategy offset by principal paydowns on mortgage-backed
securities.
At June 30, 1997, the amortized cost of investment securities classified as held
to maturity was $29,105,000 compared to $31,296,000 at December 31, 1996, a
decrease of $2,191,000 or 7.0%.
Net unrealized losses as of June 30, 1997 in Yardville's available for sale
securities portfolio were $31,000. Net unrealized losses, net of tax effect of
$19,000, were reported as a reduction of stockholders' equity at June 30, 1997.
The available for sale portfolio, except those securities purchased utilizing
repurchase agreements, provides a secondary source of liquidity.
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Federal Funds
At June 30, 1997 Federal funds sold totaled $1,250,000, a decrease of $2,790,000
as compared to $4,040,000 at December 31, 1996. While management continues to
focus on maintaining adequate short term liquidity levels, federal funds will
fluctuate due to other liquidity demands.
Loans
Total loans, net of unearned discounts, increased by $21,704,000 or 6.6%, to
$352,941,000 at June 30, 1997 compared to $331,237,000 at year end 1996.
Yardville's loan portfolio represented 67.1% of assets at June 30, 1997 compared
to 67.5% of assets at December 31, 1996.
Yardville's lending focus continues to be centered on commercial loans,
owner-occupied commercial mortgage loans and tenanted commercial real estate
loans. Yardville showed continued growth throughout its loan portfolio for the
six months ended June 30, 1997 as a result of management's emphasis on customer
relationships and opportunities associated with the continued consolidation of
the banking industry in Yardville's markets.
On a component basis, for the six month period ended June 30, 1997, commercial
loan balances increased $14,109,000 or 22.2%.
Liabilities
Yardville's deposit base is the principal source of funds supporting interest
earning assets. Total deposits amounted to $414,830,000 at June 30, 1997
compared to $364,445,000 at December 31, 1996, an increase of $50,385,000 or
13.8%. Yardville was successful in bidding for Mercer County Surrogate's
deposits which netted Yardville $15,000,000 in deposits in early January 1997.
Growth in Yardville's deposit base continues in higher yielding certificates of
deposit (CD's) and premium money market accounts, both higher cost funding
sources. Average interest bearing deposits including CD's of $100,000 or more,
increased $66,333,000 or 23.9% to total $343,303,000 for the six month period
ended June 30, 1997 as compared to $276,970,000 for the year ended December 31,
1996. Of the total increase, average time deposits grew $43,084,000 for the
comparable periods. Time deposits were competitively priced to reduce levels
of borrowed funds. Average non-interest bearing deposits have increased 9.2% for
the six month period ended June 30, 1997 compared to the year ended December 31,
1996. At June 30, 1997 interest bearing and non-interest bearing deposits
totaled $355,676,000 and $59,154,000, respectively.
Borrowed funds totaled $68,139,000 at June 30, 1997 compared to $86,339,000 at
December 31, 1996. The decrease of $18,200,000 or 21.1% in the first six months
of 1997 was principally due to the repayment of repurchase agreements.
Securities sold under agreements to repurchase decreased $14,165,000 or 22.1% to
$50,020,000 compared to $64,185,000 at December 31, 1996. Federal Home Loan Bank
advances are being utilized to strengthen short-term liquidity and support core
deposits in funding balance sheet growth. At June 30, 1997 Yardville has
$15,000,000 outstanding in FHLB advances. $10,000,000 of these advances will
mature on July 30, 1997 and the remaining $5,000,000 will mature in November of
1998.
Yardville has the availability to borrow up to $24,500,000 from the FHLB through
its line of credit program. In addition, the bank is eligible to borrow up to
$14,109,000 or 22.2%. Real estate-construction and real estate-residential
mortgage loan balances increased $4,189,000 and $1,280,000 respectively, or
16.1% and 1.5% respectively. Real estate-commercial mortgage loan balances
decreased $305,000 or 0.3% due to increased competition.
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30% of assets under the FHLB advance program subject to FHLB stock level
requirements, collateral requirements and individual advance proposals based on
FHLB credit standards. Yardville also has the ability to borrow at the Federal
Reserve discount window along with agreements to use two unsecured federal funds
lines of credit with two of its correspondent banks for daily funding needs.
Management's strategy, however, is to further build the bank's core deposit base
to fund asset growth. Borrowed funds will be utilized to meet short
term liquidity needs and as an additional source of funding for the loan and
investment portfolios.
Capital
Total stockholders' equity of $37,629,000 at June 30, 1997 increased $2,399,000
or 6.8% from $35,230,000 at December 31, 1996. This increase resulted from the
following factors during the six months ended June 30, 1997 (i) earnings of
$2,467,000 (less dividend payments of $589,000) and a decrease of $142,000 in
the unrealized loss on securities available for sale, net of income tax effect.
(ii) proceeds of $379,000 from exercised options.
Yardville's leverage ratio was 7.3% at June 30, 1997 compared to 7.8% at
December 31, 1996. At June 30, 1997 tier I and total tier I and II capital to
risk weighted assets were 10.1% and 11.4%, respectively. The risk based capital
levels at year end 1996 were 10.2% and 11.4% for tier I and total risk based
capital, respectively.
The minimum regulatory requirements require financial institutions to have a
tier I leverage ratio of 4.0%, a tier I risk-based ratio of 4.0% and a total
tier I and tier II ratio of 8.0%. A bank is considered "well capitalized" if it
has a minimum Tier 1 and total risk-based capital ratios of 6% and 10%,
respectively, and a minimum Tier 1 leverage ratio of 5%.
Credit risk
At June 30, 1997, nonperforming loans, consisting of loans 90 days or more past
due, and nonaccruing loans totaled $7,630,000 compared to $8,140,000 at December
31, 1996. Other real estate owned at June 30, 1997 totaled $873,000 compared to
$395,000 at December 31, 1996.
Total nonperforming assets decreased $32,000 or 0.4% to $8,503,000 at June 30,
1997 compared to $8,535,000 at year end 1996. Nonperforming assets as a
percentage of total assets were 1.62% at June 30, 1997. Yardville continues to
actively manage nonperforming assets with the goal of reducing these assets in
relation to the entire portfolio. Where possible, existing loan relationships
are being restructured in an effort to return these loans to a performing
status.
The allowance for loan losses increased to $5,284,000 and remained at 1.50% of
total loans at June 30, 1997 compared to $4,957,000, or 1.50% of total loans, at
year end 1996. The provision for loan losses through June 30, 1997 was $575,000.
Yardville had net loan charge-offs of $248,000 for the six months ended June 30,
1997. At June 30, 1997 the allowance for loan losses covered 69.3% of
nonperforming loans and 62.1% of nonperforming assets. The allowance for loan
losses, in management's judgment, is adequate to provide for potential losses.
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RESULTS OF OPERATIONS
Net Income
Yardville reported net income of $2,467,000 for the six months ended June 30,
1997, an increase of $484,000 or 24.4%, from net income of $1,983,000 reported
for the same time period in 1996. The increase in net income for the comparable
periods is attributable to an increase in net interest income, and to a lesser
extent, non-interest income, partially offset by an increase in non-interest
expenses. On a per share basis, the net income was $0.99 for the first six
months of 1997 compared to $0.81 for the first six months of 1996. The increase
in earnings per share is due primarily to the increase in net income during the
first six months of 1997 compared to the same time period in 1996.
On a quarterly basis, the income for the second quarter of 1997 was $1,255,000
or $0.50 per share, compared with $991,000 or $0.41 per share for the same
quarter a year ago. The increase in net income and net income per share for the
quarterly comparison are for the same reasons discussed above.
Net Interest Income
Yardville's net interest income for the six months ended June 30, 1997 was
$9,546,000, an increase of $1,166,000 or 13.9% over the $8,380,000 for the
comparable 1996 period. The principal factors contributing to the increase in
net interest income for the six months ended June 30, 1997 was an increase in
interest income of $3,327,000 resulting principally from an increase in
commercial loan volume, offset by an increase in interest expense of $2,161,000
due to increases in the volume of interest bearing deposits.
The net interest margin (tax equivalent basis) between yields on average
interest earning assets and costs of average funding sources was 3.99% at June
30, 1997 compared to 4.22% at June 30, 1996. The principal reason for the
decrease in the net interest margin was higher costs on interest bearing
liabilities.
The management strategy continuing through 1997 is to increase net interest
income by purchasing investments using repurchase agreements or other funding
sources. At June 30, 1997 approximately $57,100,000 was being utilized for this
purpose. The targeted spread on this strategy is 75 basis points after tax. This
strategy, while successful in increasing net interest income, has had a negative
impact on the net interest margin. Increased loan pricing competition and the
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subsequent decrease in loan yields also accounted, in part, for the reduction in
the net interest margin of 23 basis points for the comparable periods.
On a quarterly comparison, net interest income was $4,928,000 for the second
quarter of 1997, an increase of $668,000 or 15.7% from net interest income of
$4,260,000 for the second quarter of 1996. The 1997 increase was the result of
an increase in average earning assets of $73,967,000 combined with a decrease of
$19,066,000 in average borrowed funds offset by an increase of $87,606,000 in
average interest bearing deposits compared to the second quarter of 1996.
Interest Income
For the six month period ended June 30, 1997 total interest income of
$19,566,000 increased $3,327,000 or 20.5% as compared to $16,239,000 reported
for the same period a year earlier. On a quarterly comparison, the second
quarter of 1997 experienced an increase of $1,676,000 or 20.1% in total interest
income compared to the same period a year earlier. The increase in interest
income is due primarily to the higher volume of average loan assets. Average
loans increased $76,972,000 or 29.0% for the six months ended June 30, 1997
compared to the same 1996 period. The average yield on the loan portfolio
decreased 28 basis points for the comparable period in a lower rate competitive
marketplace.
Interest income on securities increased $193,000 or 4.8%, for the first six
months of 1997, due to a 22 basis point increase in average yield and an
increase of $1,464,000 in average balances for the six months ended June 30,
1997 as compared to the same period a year earlier. On a quarterly comparison
interest on securities increased 4.2% primarily as a result of a 27 basis point
increase in average yield. Interest on Federal Funds sold increased $150,000 for
the six month period ended June 30, 1997 due to increases in average balances of
$5,803,000 combined with a decrease in the average yields of 12 basis points.
Overall, the yield on Yardville's interest earning assets decreased 1 basis
point to 8.06% for the period ended June 30, 1997 from 8.07% for the period
ended June 30, 1996 for the combined reasons discussed above.
Interest Expense
Total interest expense increased $2,161,000 or 27.5% to $10,020,000 for the six
months ended June 30, 1997 compared to $7,859,000 reported for the six months
ended June 30, 1996. The increase in interest expense for the comparable time
periods is the result of a larger deposit base, and higher market interest
rates. Deposit products continue to be competitively priced to increase the
bank's deposit base and provide a source of funds for asset growth.
Average interest bearing liabilities amounted to $420,437,000 for the six months
ended June 30, 1997 compared to $341,499,000 for the six months ended June 30,
1996. The average rate paid on interest bearing liabilities increased 17 basis
points for the time period discussed. Increases in deposit account relationships
are attributable in part to increased commercial loan activity, community
presence, ongoing consolidation within the banking industry and the impact of
new branches opened during 1996 that now have established deposit relationships
with the bank. Average time deposits, a higher cost funding source, increased
$55,741,000 or 42.6% for the first six months of 1997 compared to the first six
months of 1996.
For the second quarter of 1997, total interest expense increased $1,008,000 or
24.6% as compared to the second quarter of a year earlier. The increase in
interest expense for the comparable quarters is due primarily to higher levels
of average time deposits.
Interest expense on borrowed funds decreased during both the quarterly and
year-to-date periods when comparing 1997 to 1996. For the year-to-date
comparison interest expense decreased $40,000. For the three months ended June
30, 1997 interest on borrowed funds decreased $222,000 or 17.3% primarily as a
result of lower average balances. Repurchase agreements were repaid during the
period to reduce borrowed funds.
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Provision For Loan Losses
Yardville provides for possible loan losses by a charge to current operations.
The provision for loan losses for the six months and three months ended June 30,
1997 was $575,000 and $300,000, respectively compared to $715,000 and $450,000,
respectively for the six months and three months ended June 30, 1996. The
year-to-date and quarterly 1997 provisions reflect management's continuing
analysis of the loan portfolio and non-performing assets. Management believes
that the allowance for loan losses is adequate in relation to credit risk
exposure levels.
Non-Interest Income
Total non-interest income was $1,240,000 for the first six months of 1997
compared to $1,035,000 for the same period in 1996. The increase of $205,000 or
19.8% is primarily attributable to an increase in other non-interest income
principally due to additional fee income derived from life insurance assets and
other fee income.
Service charges on deposit accounts decreased $14,000 or 2.4% for the first six
months of 1997 as compared to the same period a year earlier. The decrease in
service charge income resulted from a reduction in insufficient fund fees offset
by an increase in service charges on deposit accounts. Yardville realized $7,000
in gains on the sale of securities, net, in the first six months of 1997 versus
a loss of $46,000 on the sale of securities, net, in the first six months of
1996. Other non-interest income increased $157,000 or 31.6% in the first six
months of 1997 versus the first six months of 1996 for the reasons discussed
above.
For the second quarter comparison, the results were similar. Total non-interest
income for the second quarter of 1997 increased 20.8% over the same period a
year earlier. Service charges on deposit accounts decreased 2.4% for the
comparable quarters. Conversely, the increase experienced during the second
quarter of 1997 was in gains on the sale of securities of $7,000 net, compared
to a loss of $25,000 on the sale of securities net, for the three months ended
June 30, 1996. Other non-interest income increased $75,000 or 29.3% for the
three months ended June 30, 1997 compared to the three months ended June 30,
1996 due primarily to increased income derived from life insurance assets and
fee assessments for "others on us" Automated Teller Machine (ATM) card usage.
Offsetting these two increases was the elimination of the annual ATM fee for
Yardville National Bank cardholders in January 1997.
Non-Interest Expense
Total non-interest expense increased $794,000 or 14.1% to $6,409,000 for the
first six months of 1997 compared to $5,615,000 for the first six months of
1996. The increase in non-interest expense is primarily the result of increases
in salaries and employee benefits, equipment expenses and other non-interest
expenses.
Salaries and employee benefits were $3,669,000 for the first six months of 1997,
an increase of $469,000 or 14.7% compared to the same six month period of 1996.
The increase resulted from additional staffing required as Yardville has grown
for the comparable time periods and normal annual salary compensation and
benefit increases. Full time equivalent staff increased to 168 at June 30, 1997
from 152 at June 30, 1996.
Net occupancy increased $30,000 or 6.7% for the first six months of 1997 as
compared to the same period in 1996, This increase is primarily the result of
additional occupancy costs associated with new branch offices offset by
decreases in snow removal costs due to a milder winter.
Equipment expense increased $171,000 or 47.9% for the same period primarily due
to increased depreciation costs associated with new furniture and fixtures in
Yardville's new branches and in-house computer system as well as related
expenses of additional computer hardware and software upgrades required for the
implementation of a Windows 95 based computer system.
-6-
<PAGE>
Other non-interest expenses totaled $1,737,000 for the six months ended June 30,
1997, an increase of $124,000 or 7.7%, from the comparable 1996 period. The
increase in other non-interest expense is primarily the result of increased
professional fees, marketing costs and expenses incurred in working out troubled
loans and other real estate. Other real estate expenses totaled $127,000 for the
six months ended June 30, 1997 compared to $44,000 for the six months ended
June 30, 1996. The increase in other non-interest expenses was offset partially
by the elimination of computer service fees in late February 1996 with
Yardville's conversion to an in-house computer system.
When comparing the second quarter of 1997 with the second quarter of 1996, the
explanations for the fluctuations are similar to those presented above for the
six month period ended June 30. Non-interest expenses increased $533,000 or
19.1% versus the same period a year earlier. Salary and employee benefits
increased $233,000 or 14.4%. Net occupancy and equipment expenses increased 7.1%
and 54.4%, respectively. Other non-interest expenses increased 24.1% in the
second quarter of 1997 compared to the same period in 1996. The quarterly
comparison increase is due primarily to the same factors discussed in the year-
to-date review above.
Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share." SFAS 128 supersedes AFB opinion No. 15, "Earnings Per
Share," and specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. This statement is effective for financial statements for periods
ending after December 15, 1997. The adoption of this statement should not have
a material effect on the consolidated financial statements of Yardville.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure." SFAS 129 lists required
disclosures about capital structure that have been included in a number of
separate statements and opinions. This statement is effective for financial
statements for periods ending after December 15, 1997. The adoption of the
Statement should not have a material effect on the consolidated financial
statements of Yardville.
-7-
<PAGE>
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
A. The following exhibits are filed with this Form 10-Q for the fiscal quarter
ended June 30, 1997 by Yardville National Bancorp:
INDEX TO EXHIBITS
No. Exhibits Page
---- -------- ----
* 3.1 Restated Certificate of Incorporation of
the Registrant
++ 3.2 By-Laws of the Registrant
++ 4.1 Specimen of Share of Common Stock
10.1 1988 Stock Option Plan 19
+++ 10.2 1997 Stock Option Plan
27.1 Financial Data Schedule 27
* Incorporated by reference to the Issuer's Annual Report on Form 10-KSB for
the Fiscal Year Ended December 31, 1994, as amended by Form 10-KSB/A filed
on July 25, 1995.
++ Incorporated by reference to the Issuer's Registration Statement on Form
SB-2 (Registration No. 33-78050)
+++ Incorporated by reference to the Issuer's Registration Statement on Form
S-8 (Registration No. 333-28193)
B. No reports on FORM 8-K were filed by the registrant during the quarter
ended June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YARDVILLE NATIONAL BANCORP
--------------------------
(Registrant)
Date : August 14, 1997 By :
------------------ ---------------------------------------
Stephen F. Carman
Executive Vice President
and Chief Financial Officer
<PAGE>
YARDVILLE NATIONAL BANCORP
1988 STOCK OPTION PLAN
(1.) Purposes of Plan.
This 1988 Stock Option Plan (the "Plan") is designed to assist
Yardville National Bancorp (the "Company") in attracting and retaining highly
qualified persons as Employees of the Company and its Subsidiaries and to
provide such key employees with incentives to contribute to the growth and
development of the business of the Company.
This Plan will be effected through the granting of stock options on the
terms and conditions hereinafter provided, which options are intended to qualify
as "incentive stock options" within the meaning of section 422A of the Internal
Revenue Code of 1986, as amended.
(2.) Definitions
Unless the context otherwise indicates the following terms have the
following meanings:
"Board" - means the Board of Directors of the Company.
"Code" - means the Internal Revenue Code of 1986, as the same may from
time to time be amended.
"Committee" - means the Committee referred to in Section 4 hereof.
"Common Stock" - means the Common Stock, no par value, of the Company.
"Designated Beneficiary" - means the person designated by an optionee
to be entitled on his death to any remaining rights arising out of an
option, such designation to be made in accordance with such regulations
as the Committee may implement from time to time.
"Employee" - means any employee (including an officer) of the Company
or any subsidiary of the Company.
"Fair Market Value" - means the fair market value of Common Stock as
determined by the Committee in a manner consistent with the Code and
any regulations thereunder.
"Incentive Stock Options" - means stock options which constitute
incentive stock options within the meaning of Section 422A, or any
successor section, of the Code having the provisions specified in the
Plan for such incentive stock options and otherwise qualifies as a "Non
Employee director" under Rule 16b-3 under the Exchange Act.
"Parent" - means "parent corporation" as defined in Section 425(e), or
any successor section, of the Code.
<PAGE>
"Stock Option Agreement"-- means a stock option agreement entered into
pursuant to the Plan substantially in the form of Exhibit A hereto.
"Subsidiary" - means "subsidiary corporation" as defined in Section
425(f), or any successor section, of the Code.
"Ten Percent Stockholder" - shall mean any person who, immediately
after any option is granted to such person owns, within the meaning of
Section 422A(b) (6) (or any successor section of the Code) more than
10% of the total combined voting power of all classes of stock of the
Company, its parent, if any, or its Subsidiaries.
(3.) Stock Subject to Plan.
The shares to be issued upon exercise of the options granted under the
Plan shall be Common Stock. The maximum number of shares of Common
Stock for which options may be granted under the Plan shall be 22,000
shares (subject to adjustment as provided in section 10 hereof). The
Common Stock to be issued upon exercise of the options may be
authorized but unissued shares or treasury shares, as determined from
time to time by the Committee. If any option granted under the Plan
shall expire or terminate for any reason whatsoever without having been
exercised in full, the unpurchased shares of Common Stock previously
subject to such option shall become available for new options.
(4.) Administration.
(a) The Plan shall be administered by a Stock Option
Committee of not less than two Directors. The Board shall annually appoint the
members of the Stock Option Committee at the annual organizing meeting of the
Board.
(b) The Board shall fill all vacancies on the Committee and
may remove any member of the Committee at any time with or without cause. The
Committee shall select its own chairman and shall adopt, alter or repeal such
rules and procedures as it may deem proper and shall hold its meetings at such
times and places as it may determine. The Committee shall keep minutes of its
proceedings. Action by a majority of the Committee members present at any
meeting at which a quorum is present, or action approved in writing by all
members of the Committee without a meeting, shall constitute the acts of the
Committee.
(c) Subject to the provisions of the Plan, the Committee shall
have the full and final authority to (i) determine the Employees to whom, and
the times at which, options shall be granted and the number of shares subject to
each option; (ii) prescribe, amend and determine the provisions of options
granted under the Plan (which need not be identical) and, with the consent of
the holder thereof, amend or modify any option; (iii) determine the provisions
2
<PAGE>
of options granted under the Plan (which need not be identical) and, with the
consent of the holder thereof, amend or modify any option; (iv) interpret the
Plan and the respective options; and (v) make all other determinations necessary
or advisable for administering the Plan. All determinations and interpretations
by the Committee shall be binding upon all parties. No member of the Committee
or the Board shall be liable for any action or determination made in good faith
in respect of the Plan or any option granted under it.
(d) The provisions of this Section 4 shall survive any termination of
the Plan.
(5.) Eligibility for Award of Options.
(a) Options may be granted only to officers and other key employees of
the Company and its Subsidiaries. Any reference in the Plan to "employment by
the Company" shall also be deemed to include employment by any Subsidiary of the
Company. Determination by the Committee or the Board as to who are eligible
employees shall be conclusive.
(b) A person who is a director of the Company, or any subsidiary, shall
not be considered an officer or employee for the purpose of the Plan solely
because he or she is a director. However, a person who otherwise is an eligible
officer or employee shall not be disqualified by virtue of being a director of
the Company or any Subsidiary.
(c) More than one option may be granted to any eligible Employee.
(6.) Option Price.
(a) The purchase price of the Common Stock under each option shall be
determined by the Committee. The purchase price shall be at least 100 percent
(100%) of the fair market value of the Common Stock on the date of grant of the
option. The purchase price under an option granted to an officer or employee who
is a Ten Percent Stockholder shall be at least 110% of the fair market value of
the Common Stock on the date of the grant of the option.
(b) It is anticipated that the purchase price of the Common Stock under
the option will be 100% of the fair market value, except that with respect to a
Ten Percent Stockholder the purchase price will be 110% of the fair market
value. The fair market value is expected to be the price most recently quoted by
the market makers in the Common Stock. If there is no asked quotation, the fair
market value is expected to be the bid quotation. If there is both a bid and
asked quotation, the fair market value is expected to be the average of the bid
and asked quotations. This paragraph shall not be binding on the Committee. The
Committee in its discretion may issue stock options with a purchase price in
excess of the fair market value and may utilize a different measure of the fair
market value than that set forth here.
3
<PAGE>
(7.) Annual Limitation on Grants To One Officer or Employee.
No option shall be granted during any calendar year to any individual
under the Plan if the aggregate fair market value (as of the time the option is
granted) of the Common Stock with respect to which incentive stock options are
exercisable for the first time by such individual during any calendar year
(under the Plan and any other plan of the Company, its Parent, if any, and its
Subsidiaries) exceeds $100,000.
(8.) Terms and Exercise of Options.
(a) Maximum 10 year Termination Date. Each option shall expire no later
than ten years after the date on which it shall have been granted, but the
Committee in its discretion may prescribe a shorter period for any individual
option or options. Any Incentive Stock Option granted to a person who is a Ten
Percent Stockholder shall terminate no later than 5 years after the date on
which the option was granted. The date of termination pursuant to this paragraph
is referred to hereinafter as the "termination date of the option."
(b) Vesting.
(i) Options shall be exercisable at such times and in such
installments, if any, as the Committee may determine. In the
event any option is exercisable in installments, any shares
which may be purchased during any year or other period which
are not purchased during such year or other period may be
purchased at any time or from time to time during any
subsequent year or period during the term of the option unless
otherwise provided in the Stock Option Agreement.
(ii) While the Committee may set any vesting schedule which it
wishes, it is the expectation of the Board in adopting this
Plan that the options vest during a period of up to five years
after the date of grant. For example, the Committee may provide
that only 25% of the shares granted under the option may be
purchased during the first year after the date of grant, an
additional 25% of the shares may be purchased commencing two
years after the date of grant, an additional 25% of the shares
may be purchased at any time three years after the date of
grant and 100% of the stock may be purchased only four years
after the date of grant.
(iii) In connection with any proposed sale or conveyance of all or
substantially all of the assets of the Company or of any
proposed consolidation or merger of the Company or of any
proposed Change in Control of the Company, the Board in its
discretion may accelerate the vesting schedule of any or all
options. In the event the Board does determine to accelerate
the vesting schedule, it shall notify each holder of an option
whose vesting schedule has been accelerated.
4
<PAGE>
(c) Means of Exercise of Option. An option shall be exercised by
written notice to the Secretary or Treasurer of the Company at its principal
office. The notice shall specify the number of shares as to which the
option is being exercised and shall be accompanied by payment in full of the
purchase price for such shares. An optionee at his discretion may, in lieu of
cash payment, deliver Common Stock already owned, with a Fair Market Value (on
the date of exercise) equal to the purchase price for the shares being acquired
pursuant to exercise of the option, as payment for the exercise of any option.
In the event an option is being exercised in whole or in part, by any person
other than the optionee, a notice of election shall be accompanied by proof
satisfactory to the Company of the rights of such person to exercise said
option. An optionee shall not, by virtue of granting of an option, be entitled
to any rights of a shareholder in the Company and he shall not be considered a
record holder of shares purchased by him until the date on which he shall
actually be recorded as the holder of such shares upon the stock records of the
Company. The Company shall not be required to issue any fractional shares upon
exercise of any option and shall not be required to pay to the person exercising
the option the cash equivalent of any fractional share interest unless so
determined by the Committee.
(d) Options Are Non-Transferrable. No stock options may be transferred
by the optionee (except in connection with death or disability as provided in
Section 8 (f) and (g).
(e) Options Lapse 3 Months After Termination of Employment. In the
event of the termination of an optionee's employment by the Company or its
Subsidiaries at any time for any reason (excluding disability or death), his
options and all rights thereunder shall be exercisable by the optionee at any
time within three (3) months thereafter but only to the extent exercisable by
him on the date of termination of his employment and in no event later than the
termination date of his option.
(f) Option Exercisable 12 Months After Termination in Event of
Disability. In the event an employee is permanently and totally disabled (within
the meaning of Section 422(c)(6), or any successor section, of the Code), his
option and all rights thereunder shall be exercisable by the optionee at any
time within twelve (12) months of his termination of employment, but in no event
later than the termination date of the option.
(g) Options Exercisable 12 Months After Date of Death. If an optionee
shall die while in the employ of the Company or any of its Subsidiaries, his
options may be exercised at any time within twelve (12), months after the date
of his death, but only to the extent exercisable by the optionee at his death
and the option may not be exercised later than the termination date of the
option.
(h) No Right to Continued Employment. Nothing in the Plan or in any
option granted pursuant hereto shall confer on any individual any right to
continue in the employ of the Company or any of its
5
<PAGE>
Subsidiaries or prevent or interfere in any way with the right of the Company or
its Subsidiaries to terminate his employment at any time, with or without cause.
(i) Options Must Be Evidenced by Writing. Each option granted pursuant
to the Plan shall be evidenced by a written Stock Option Agreement, duly
executed by the Company and the optionee, in such form and containing such
provisions as the Committee or Board may from time to time authorize or approve.
(j) In the event of an Employee's death or disability (within the
meaning of Section 422(c)(6) or any successor section, of the Code), such
Employee's Designated Beneficiaries, legal representative or executor shall have
the right to exercise such Employee's options to the same extent as such
Employee would have under Section 8(e), (f) or (g), as applicable, as of the
date on which such Employee's employment by the Company or any Subsidiary
terminated.
(9.) Adjustments.
The Stock Option Agreement shall contain appropriate provisions for the
adjustment of the kind and number of shares subject to each outstanding option
and the purchase price under each option in the event of any changes in the
outstanding Common Stock of the Company by reason of stock dividends, stock
splits, recapitalization, reorganizations, mergers, consolidations, combinations
or exchange of shares, and the like. In the event of any such change or changes
in the outstanding Common Stock, and as often as the same shall occur, the kind
and aggregate number of shares available under the Plan shall be appropriately
adjusted by the Committee or Board, whose determination shall be binding and
conclusive.
(10.) Amendment and Termination.
(a) Unless the Plan shall have been sooner terminated as provided
herein, no incentive stock option shall be granted hereunder after February 24,
1998. The Board may at any time prior to that date alter, suspend or terminate
the Plan as it may deem advisable, except that it may not without further
shareholder approval (i) increase the maximum number of shares subject to the
Plan (except for changes pursuant to Section 10), (ii) extend the period during
which options may be granted or exercised or (iii) make any other change unless
the Board determines that the change would not materially increase the cost of
the Plan to the Company. Except as otherwise hereinafter provided, no
alteration, suspension or termination of the Plan may, without the consent of
the employee to whom any option shall have theretofore been granted (or the
person or persons entitled to exercise such option under Section 8(f) or (g) of
the Plan), terminate his option or adversely affect his rights thereunder.
(b) Anything herein to the contrary notwithstanding, in the event that
the Board shall at any time declare it advisable to do so in connection with any
6
<PAGE>
proposed sale or conveyance of all or substantially all of the assets of the
Company or of any proposed consolidation or merger of the Company, the Company
may give written notice to the holder of any option that his option may be
exercised only within thirty (30) days after the date of such notice but not
thereafter, and all rights under said option which shall not have been so
exercised shall terminate at the expiration of such thirty (30) days, provided
that the proposed sale, conveyance, consolidation or merger to which such notice
shall relate shall be consummated within six (6) months after the date of such
notice. In the event such notice shall have been given, any such option may be
exercised either in whole or in part notwithstanding the vesting period required
under the terms of the option for the exercise thereof. If such proposed sale,
conveyance, consolidation or merger shall not be consummated within said time
period, no unexercised rights under any option shall be affected by such notice
except that such option may not be exercised between the date of expiration of
such thirty (30) days and the date of the expiration of such six (6) months.
(11.) Indemnification.
Any member of the Committee or the Board who is made, or threatened to
be made, a party to any action or proceeding, whether civil or criminal, by
reason of the fact that he is or was a member of the Committee or the Board
insofar as relates to the Plan shall be indemnified by the Company, and the
Company may advance his related expenses, to the full extent permitted by law
and/or the By-Laws of the Company.
(12.) Effective Date of the Plan.
The Plan shall become effective on, and options may be granted
thereunder after February 24 1988, provided, however, that if the Plan shall not
be approved by the holders of a majority of the outstanding voting stock of the
Company within twelve months of said date, the Plan and all options granted
thereunder shall be and become null and void, and provided, further, that no
options granted by the Committee may be exercised prior to the approval of the
Plan by shareholders.
(13.) Expenses.
The Company shall pay all fees and expenses incurred in connection with
the establishment and administration of the Plan.
(14.) Government Regulations, Registration and Listing of Stock.
(a) The Plan, and the grant and exercise of options thereunder, and the
Company's obligation to sell and deliver stock under such options, shall be
subject to all applicable federal and state laws, rules and regulations and to
such approvals by any regulatory or governmental agency as may be required.
(b) Unless a registration statement under the Securities Act
7
<PAGE>
of 1933 and the applicable rules and regulations thereunder (collectively the
"Act") is then in effect with respect to shares issued upon exercise of any
option (which registration shall not be required), the Company shall require
that the offer and sale of such shares be exempt from the registration
provisions of said Act. In furtherance of such exemption, the Company may
require, as a condition precedent to the exercise of any option, that the person
exercising the option give to the Company a written representation and
undertaking, satisfactory form and substance to the Company, that he is
acquiring the shares for his own resale thereof and otherwise establish to the
Company's satisfaction that the offer or sale of the shares issuable upon
exercise of the option will not constitute or result in any breach or violation
of the Act or any similar state act or statute or any rules or regulations
thereunder. In the event a registration statement under the Act is not then in
effect with respect to the shares of Common Stock issued upon exercise of an
option, the Company shall place upon any stock certificate an appropriate legend
referring to the restrictions or disposition under the Act.
(c) In the event the class of shares issuable upon the exercise of any
option is listed on any national securities exchange, the Company shall not be
required to issue or deliver any certificate for shares upon the exercise of any
option prior to the listing of the shares so issuable on such national
securities exchange and prior to the registration of the same under the
Securities Exchange Act of 1934 or any similiar act or statute.
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